How loss aversion killed the turkey

Do you create new products and services under conditions of extreme uncertainty? Do you think any contract will make the project more likely to succeed? Are you even an employee? C’mon, don’t be a turkey! Yes, a turkey!

I had this blogpost in progress for a long time. A few weeks ago a tweet by Nassim Taleb – along with the essay attached – made me think of it and so… here it is.

You shouldn’t feel too safe

You know how turkeys’ life is in the USA: they get fed for months, they get every attention throughout the summer. They feel care, trust and don’t even suspect what is going to happen by the end of October! Their expectation about a life of luxury and obsequious homages gets ruined by an unexpected event: Thanksgiving Day. And the hand that fed them now kills them. That may sound sad for humans, especially for vegans, but sure that sounds tragic to the turkeys. What’s even worse is that they get no clue about their own destiny by the evidences that were available throughout their life: the story told by the past has nothing to do with how the story ends. Unknown unknowns kick in.

Would you really trust someone feeding you for free everyday of your life not killing you in the end? I wouldn’t! As humans, though, we don’t usually perform better than turkeys! Despite our intellectual advantage over turkeys, we still tend to overestimate losses while underestimating potential gains of the same value. That is called loss aversion bias. As a species, humans have developed this bias to better cope with an environment characterized by scarcity. It must have been very hard for our ancestors to get their goods, so preserving them must have been more valuable than the willingness of accepting the risk of getting new goods.

That loss aversion, sometimes, makes us stick to a warm safety feeling instead of exploring new chances for better gains.

Valueable value

Turkeys put aside for a moment, now please consider lean thinking and lean management and their very aggressive definition of value. According to those mindsets value is what is worth the customer’s money or the user’s time. All the rest is waste. If you start thinking out of the box, wondering what elements of your job truly add value, the least that you can find out is that many of them just don’t. Are you moving partial deliveries around? Are you reprocessing deliverables to correct defects? Are you waiting for a contract to be signed off? That’s waste, not value. Simple as that.

I decided to write this post when I asked this very easy question to the people I am in touch with on Twitter and Facebook:

Do you think a contract can raise your chances to succeed in a project?

For the sake of simplicity I just meant a project “successful” if all the stakeholders, the users, the sponsors and – last but not least – the suppliers are happy for what they get in exchange for they give. It doesn’t necessarily relate to deadlines, but it could. It doesn’t necessarily relates to clarity of requirements, but it could. It doesn’t necessarily relates to money, but well… usually it does! 🙂 All in all, I don’t even mind having a perfect definition of a “successful project” here. Whatever your definition, I was asking myself if a contract may add value to the development of a product or a service as much as the time we spend every time in thinking, writing, agreeing on, signing and sueing around it.

I received a lot of replies.

Don’t be a turkey!

Not surprisingly, most of the people blatantly ignored the true question, replying about the safety feeling provided by a contract.

It can raise my chance to get a meal.

was the first open-hearted and sincere reply. To tell the truth, though, my question was about how a contract may help making things go better and not how it may undoubtely help in case everything goes so wrong that we need to call the lawyer. Still the success of a start-up has nothing to do with how we’ll manage its final failure.

Back to the definition of value used in lean thinking, if we were in the F1 racing business, it’s as if we cared more about the pilot’s helmet than the engine’s power. The story of car racing shows that safety is a compliancy issue, not a performance one: no car racing team ever won a race because of the helmet. Also, and that is very important, when working for a start-up we aren’t likely risking our life but just a finite amount of time/money.

“That amount of time/money is what I live by!” I hear you say. Sure! You are right! But only a turkey would go on working until the day of its death with no real feedback about the true quality of its working relationship. And usual contracts provide no feedback at all! They just help you minimizing damage when you are already in a mess or at best when more or less expected problems start popping out of the horizon! A contract provides no defence against unknown unknows! As Francesco perfectly stated replying to my question:

A contract may save you […] if the projects fails the way you had planned.

Among the best replies, Memi’s one pointed out how safety creates room in his mind to focus on his customers and their projects, thus – in a sense – creating indirect value. I may agree with him, since knowledge work is a tricky one, depending on many soft variables. But still this is indirect value. We are still assuming here that the helmet will primarily make the racer win, by making him feel safe, while drivi… well… I’d invest more in the engine, you know?

There is more. If we accept that we need safety to create an environment in which we can foster value creation, then why don’t we find better ways to provide that safety both to ourselves and our customers instead of just a piece of paper?